Supplementary Health Insurance and medical prices: an inflationary spiral ?

We investigate the existence of an inflationary spiral on medical prices due to supplementary health insurance (SHI), focusing on the demand for specialists who balance bill their patients, i.e. charge them more than the regulated fee. We ask three questions. First, is balance billing consumption a motive to buy SHI? Second, does SHI have a positive impact on the use of physicians who charge balance billing? Third, is the behavioral reaction to balance billing coverage correlated with self selection into SHI? We consider a structural model that links demand for balance billing, decision to take out balance billing coverage and the reaction to better coverage. From this model, we derive marginal treatment effects to estimate the causal impact of SHI coverage on balance billing consumption on a French database of 58,519 individuals observed in 2012. We are able to identify adverse selection, to estimate heterogeneous moral hazard, driven by both observed and unobserved characteristics, and to test for selection on return. We find that SHI can feed an inflationary spiral on medical prices. Specifically, we find that observable characteristics such as specialists availability are associated with a higher use of balance billing, are also determinants of balance billing coverage. Coupled with moral hazard, this form of adverse selection is likely to encourage the rise in prices. Furthermore, we show that selection on return reinforces the inflationary spiral. Individuals with observed and unobserved characteristics that make them more likely to subscribe to SHI are also those who exhibit stronger moral hazard, i. e. a larger increase in balance billing per visit. The role of income is particularly interesting. Without coverage, the poor consume less balance billing than the rich but increase their consumption more sharply once covered. They are also more likely to take out balance billing coverage.